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October 11, 2005
Steven R. Lacy, Esq.
Sr. VP, Administration, General Counsel and Secretary
KI Holdings Inc.
436 Seventh Avenue
Pittsburgh, PA 15219
Re: KI Holdings Inc.
Registration Statement on Form S-1
Filed September 12, 2005
File No. 333-128250
Dear Mr. Lacy:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation
as to why our comment is inapplicable or a revision is
unnecessary.
Please be as detailed as necessary in your explanation. In some
of
our comments, we may ask you to provide us with information so we
may
better understand your disclosure. After reviewing this
information,
we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We
look forward to working with you in these respects. We welcome
any
questions you may have about our comments or any other aspect of
our
review. Feel free to call us at the telephone numbers listed at
the
end of this letter.
General
1. Please include all information that is not subject to Rule 430A
in
the next amendment, including a bona fide estimate of the range of
the
maximum offering price for the shares and the maximum number of
shares
offered. This information must be included on the prospectus cover
page, as well as in the body of the prospectus. See instruction
1(A)
to Item 501(b)(3) of Regulation S-K. We will need adequate time to
review this information once it is provided.
2. All exhibits are subject to our review. Accordingly, please
file or
submit all of your exhibits with your next amendment, or as soon
as
possible. Please note that we may have comments on the legal
opinion
and other exhibits once they are filed. Understand that we will
need
adequate time to review these materials before accelerating
effectiveness.
3. Prior to the effectiveness of the registration statement,
please
arrange to have the NASD call us or provide us with a letter
indicating that the NASD has cleared the filing.
4. Please update all information in the prospectus to the most
recent
practicable date.
5. Please do not use smaller type in tables, as you do on pages 7
and
31, for example.
6. To the extent applicable, our comments also apply to future
filings
of Koppers, Inc.
Cover Page
7. Please identify the nature of the underwriting arrangements.
See
Item 501(b)(8) of Regulation S-K.
Inside Front Cover Page
8. Please provide a copy of any inside cover graphics.
Summary, page 1
9. Disclosure on pages 1-4 of the summary repeats information
contained on pages 54-57 of the Business section of the
prospectus.
Please shorten the prospectus summary. See instruction to Item
503(a)
of Regulation S-K.
10. Please revise to include a balanced description of your
business.
For example, you discuss your net sales and EBITDA for the past 12
months, but do not disclose your results of operations over the
past
three years. In addition, please remove the section on your Key
Competitive Strengths or also describe your weaknesses. Finally,
if
you want to highlight key aspects of your business strategy,
please do
so in a short bullet-point list and balance by briefly discussing
the
risks of implementing your strategy.
11. Disclose the basis for all of your assertions about your
competitive position within your industry. If you funded or were
otherwise affiliated with any of the studies or reports you cite,
please disclose this. Note that if any of this information was
prepared by a third party for inclusion in this registration
statement, you should file the consent of such party as an
exhibit.
Otherwise, please confirm that these sources are widely available
to
the public. If you do not have appropriate independent support for
a
statement, please revise the language to make clear that this is
your
belief based on your experience in the industry, if true. This
comment
is also applicable to any unsupported claims in the Business
section
of the filing. We may have additional comments after we review
your
response.
The Offering, page 6
12. Please revise to more accurately describe your intent and the
board of directors` intent with regard to the dividend policy.
Describe the risks and potential effect of this policy, including
your
leverage and ability to fund operations and growth. Also describe
the
dividend restrictions in your debt agreements and under state law.
Summary Historical Consolidated Financial Data, page 7, and
Selected
Historical Consolidated Financial Data, page 31
13. In regard to the non-GAAP measure that you present, please be
advised that:
* When you present this measure, you should also disclose the most
directly comparable GAAP measure with equal or greater prominence
and
provide a cross-reference to the required reconciliation. Please
revise your disclosures on pages 1 and 54.
* You should revise your disclosures on pages 9 and 33 to address
the
additional limitations of excluding interest expense and income
taxes
from a measure used to evaluate operating results.
Risk Factors, page 11
14. Some of your risk factor headings do not specify the resulting
risk. Please revise them to specify clearly the risk.
15. Please avoid language in risk factors like "adversely
affected" or
"material adverse effect." Instead, please state what the
specific
impact will be on your financial condition or results of
operations.
16. Some of your risk factors use language like "there can be no
assurance" or "we cannot assure you." Please delete this
language;
the real risk is not your inability to offer assurance, but the
condition described.
17. The many of the risk factors contain legalese and the actual
risk
you are trying to convey does not stand out from the extensive
detail
you provide. Please revise in more concrete terms, get to the risk
as
quickly as possible and provide only enough detail to place the
risk
in context. We may have additional comments after we review your
response.
18. Provide the information investors need to assess the magnitude
of
the risk. For example: quantify potential dilution as a result of
the
offering; explain why you have substantial negative net worth;
quantify your potential exposure relating to environmental laws
and
regulations; describe how adverse weather has impacted your
operations; clarify the effect on your operations and investors if
you
default on your debt and are unable to refinance; and describe
your
internal control deficiencies.
19. Item 503(c) of Regulation S-K states that issuers should not
"present risk factors that could apply to any issuer or to any
offering." For example, the risks you disclose relating to senior
management, terrorist attacks and being a public company could
apply
to nearly any issuer in your industry and even in other
industries. If
you elect to retain these and other general risk factors in your
prospectus, you must clearly explain how they apply to your
industry,
company, or offering.
This offering may cause us to undergo an "ownership change"...,
page
18
20. Please disclose why you cannot determine whether the offering
will
cause an ownership change and when you will be able to make this
determination.
Our management and auditors have identified certain deficiencies
....,
page 25
21. Please identify the control deficiencies, address how the
weaknesses were overcome, and specifically address what remedial
actions you are undertaking and when you expect them to be
completed.
Forward-Looking Statements, page 26
22. Section 27A(b)(2)(D) of the Securities Act and Section
21E(b)(2)(D) of the Exchange Act expressly state that the safe
harbor
for forward-looking statements does not apply to statements made
in
connection with an initial public offering. Please revise
accordingly.
Industry and Market Data, page 26
23. Please revise the last two sentences of this section to
eliminate
the implication that you are not responsible for the accuracy of
the
information you elect to include in your prospectus.
Dividend Policy, page 29
24. Disclose the frequency and amount of any cash dividends for
the
past two years. See Item 201(c) of Regulation S-K. We note that
the
company declared a $35 million dividend on July 28, 2005. Please
disclose whether this dividend was declared pursuant to any
agreement.
Clarify whether you have historically had sufficient earnings to
pay
dividends or whether you used borrowings.
25. Please describe in detail the restrictions in your debt
agreements
and their potential impact on your ability to pay dividends at the
rates identified.
26. Please clarify whether you are able to pay dividends under
Pennsylvania law based on the second test and your negative net
worth.
27. The first sentence of the disclosure should clearly state the
dividend policy, including the judgments made with regard to
paying
out cash instead of retaining it. Also clarify whether the board
contemplates paying out all excess cash. If not, clarify what the
rate
is based on. Fully address the potential long-term implications
for
your business and financial condition arising from paying out
cash. We
may have additional comments after we review your response.
28. Clearly address the potential necessity of using borrowings to
fund dividends, if applicable. Discuss these assumptions and
considerations in your Management`s Discussion and Analysis of
Financial Condition and Results of Operations as well, to the
extent
that they represent known material trends, demands, commitments
and
uncertainties, or are otherwise material to an understanding of
your
business, results of operations and financial condition.
Dilution, page 30
29. Revise the dilution table to include the shares underlying
options
that officers, directors and affiliates have the right to acquire,
including grants under the 2005 long-term incentive plan. See Item
506
of Regulation S-K.
30. Provide dilution information assuming the underwriters
exercise
the over allotment option.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 35
Trend Overview, page 35
31. Please describe any other known trends or uncertainties that
you
reasonably expect will have a material impact on net revenues or
income from continuing operations. For example, the Other Business
Matters you discuss on page 52 appear relevant in this section.
Also
discuss any known trends relating to the cost of raw materials.
Results of Operations, page 37
32. Please expand your discussion under results of operations for
all
periods to:
* Quantify each factor you cite as impacting your operations. For
example, you disclose the increase in net sales for your carbon
materials & chemicals segment is attributable to pricing
increases,
offset by volume reductions in phthalic anhydride and furnace
coke,
without quantifying the impact attributed to each component.
* Describe unusual or infrequent events, significant economic
changes,
and significant components of revenue and expenses. For example,
your
discussion of the increase in net sales does not explain why there
were higher raw material costs and why there were volume
reductions
for phthalic anhydride and furnace coke.
* Discuss the extent to which material increases in net sales are
attributable to increases in prices, volume or amount of products
being sold, or introduction of new products. For example, part of
your
explanation for the decrease in income from operations for your
railroad & utility products segment was primarily due to a change
in
product mix without further analysis as to whether this was a one-
time
event or may continue in the future and the impact on future
sales. In
addition, we note in your Business section that you discuss new
products; however, your MD&A discussion does not include an
analysis
of how new products impacted your net sales and costs.
Note that this is not meant to represent an all-inclusive list of
where your MD&A should be improved. We encourage you to provide
quantification of amounts and further clarification throughout
your
discussion. See Item 303(a)(3) of Regulation S-K.
Liquidity and Capital Resources, page 40
33. To enhance your disclosure, please revise your filing to
disclose
your compliance and Koppers` compliance with debt covenants as of
the
latest balance sheet date. In addition, disclose and discuss your
most restrictive debt covenants and your current level of
compliance.
34. To enhance your disclosure, please revise your filing to
disclose
and discuss the most significant restrictions on your ability and
Koppers` ability to declare dividends.
35. Please expand your liquidity discussion to cover the three-
year
period covered by the financial statements and not just fiscal
year
2004, using year-to-year comparisons or any other format to
enhance
the reader`s understanding. See Instruction 1 to Item 303(a) of
Regulation S-K.
36. To enhance your disclosure, please expand your discussion of
liquidity and capital resources to include:
* known trends or uncertainties regarding your operating cash
flows
and working capital (we note that operating cash flow decreased
since
2002);
* a more detailed discussion related to your sources and uses of
debt
financing, including whether you have or anticipate refinancing
any of
your debt;
* the impact on your liquidity and results of operations from
increasing your debt and whether you expect this trend to
continue;
* prospective information on the costs you expect to incur for
capital
expenditures to expand your business; and
* known contractual commitments, such as the raw material purchase
contracts identified in your contractual obligations table.
37. We note your disclosure that in August 2005, you received a
dividend payment of $13 million from Koppers Inc., which was
borrowed
under the revolving credit facility. Using these proceeds and
available cash, you declared a dividend totaling $35 million.
Please
clarify what you mean by "available cash" and disclose whether the
cash was provided by borrowings.
Stock Purchases by Directors/Restricted Stock Grants to Senior
Management, page 43
38. Please disclose the price paid for the stock issued to the
members
of the board of directors, and the exercise prices for the options
that were granted. Please also identify the persons to whom the
securities were issued.
Business, pages 54
39. Please describe the general development of KI Holdings and
Koppers, including the 2004 restructuring and the role of Saratoga
Partners and the management investors. See Item 101(a) of
Regulation
S-K.
Our Business Strategy, page 57
40. Please describe in greater detail the initiatives you have
taken
to rationalize your capacity, streamline operations and improve
productivity. Also describe in greater detail your initiative
relating
to the closure of the Montgomery, Alabama facility and any other
restructuring plans.
Carbon Materials & Chemicals, page 58, and Railroad & Utility
Products, page 61
41. Please describe in greater detail the actual services you
offer
and products you produce. For example, clarify whether you
manufacture the products, contract with third parties or have
entered
into joint ventures or partnerships to manufacture the products.
Also,
describe:
* the methods of distribution of your products;
* your practices relating to working capital items, such as
inventory
or warranties; and
* the importance of patents, trademarks, and licenses to your
business.
Consider providing subheadings for each of your products so that
your
disclosure is easier to understand.
Technology and Licensing, page 63
42. Please disclose when your material intellectual property
rights
will terminate.
Employees and Employee Relations, page 64
43. Please disclose the status of any negotiations related to the
labor contracts that expire in 2005.
Legal Proceedings, page 65
44. For each proceeding, disclose the name of the court or agency
in
which the proceedings are pending, the date instituted, the
principal
parties, a description of the factual basis alleged to underlie
the
proceeding and the relief sought. See Item 103 of Regulation S-K.
45. Please provide the environmental disclosures required by
Instruction 5 to Item 103 of Regulation S-K.
Management, page 67
46. Describe any arrangement or understanding between any
executive
officer or director and any other person(s) pursuant to which he
was
or is to be selected as an officer or director. See Item 401(a)
and
(b) of Regulation S-K.
Benefit Plans, page 72
47. It appears that the terminal value for Mr. Turner exceeds the
values listed in the tables on page 73. Please revise to include
the
benefits payable to Mr. Turner.
Principal and Selling Stockholders, page 78
48. Please indicate in the footnotes, the number of shares that
each
shareholder has the right to acquire within 60 days. See Item
403(a)
of Regulation S-K.
49. Disclose whether all the preferred stock will be converted
into
shares of common stock upon completion of the offering. Since the
preferred stock is immediately convertible into common stock,
include
those shares in the column for common stock and indicate in the
footnotes the shares of preferred stock held by Saratoga.
50. Please identify the name of each selling shareholder and
include
all of the information required by Item 507 of Regulation S-K.
51. Supplementally advise us whether any of the selling
shareholders
are broker-dealers or affiliates of a broker-dealer.
52. Please revise this section to indicate that the selling
shareholders may be underwriters with respect to the shares that
they
are offering for resale.
Certain Relationships and Related Transactions, page 80
53. Please describe the consulting services performed by Robert
Cizik.
54. Since this is a firm commitment offering, please disclose
whether
the stockholders` agreement will terminate automatically.
Shares Eligible for Future Sale, page 87
55. Quantify the number of shares that are eligible for future
sale
under each subheading.
Material United States Federal Income Tax Considerations, page 89
56. Please remove the first sentence in the paragraph stating that
the
discussion is for "general information only." This may imply that
investors are not entitled to rely on this information.
Underwriting, page 92
57. Disclose the criteria that the representatives will use in
determining whether to consent to waiving the 180-day lock-up
agreement. In addition, disclose the criteria that they will use
in
determining whether to waive an extension if one of the events
that
you list occurs.
58. Please identify any members of the underwriting syndicate that
will engage in any electronic offer, sale, or distribution of the
shares and describe their procedures to us supplementally, or
confirm
that the Division`s Office of Chief Counsel has reviewed and
approved
these procedures. If you become aware of any additional members
of
the underwriting syndicate that may engage in electronic offers,
sales, or distributions after you respond to this comment,
promptly
supplement your response to identify those members and provide us
with
a description of their procedures.
59. Tell us whether you or the underwriters have any arrangements
with
a third-party to host or access your preliminary prospectus on the
Internet. If so, identify the party and the website, describe the
material terms of your agreement, and provide us with a copy of
any
written agreement. Please also provide us with copies of all
information concerning your company or prospectus that has
appeared on
their website. Again, if you subsequently enter into any such
arrangements, promptly supplement your response.
60. We note that the underwriters have reserved shares for sale
directly to your directors, employees and designated individuals.
Please supplementally describe the mechanics of how and when these
shares are offered and sold to investors in the directed share
program
for this offering. For example, tell us how the prospective
recipients and number of reserved shares are determined. Tell us
how
and when the issuer and underwriter notified the directed share
investors, including the types of communications used. Discuss the
procedures these investors must follow in order to purchase the
offered securities. Are directed share purchasers required to
establish accounts before the effective time, and, if so, what if
any
funds are put in newly established brokerage accounts before the
effective date? How do the procedures for the directed share
program
differ from the procedures for the general offering to the public?
Also, please state whether or not the shares purchased as part of
the
directed share program will be subject to the lock-up agreement.
Notice to Canadian Residents, page 95
61. Please tell us whether private sales to Canadian residents
have
been completed during the time the registrant has been "in
registration," which is defined as the period from the time an
issuer
reaches an understanding with the broker-dealer who is going to
act as
managing underwriter prior to the filing of the registration
statement
until the end of the period during which broker-dealers are
required
to deliver a prospectus after effectiveness.
Consolidated Statements of Operations, pages F-2 and F-18
62. Please revise your consolidated statements of operations to
include earnings per share information as required by paragraphs
36-37
of SFAS 128, Earnings per Share and Rule 5-03.20 of Regulation S-
X.
In addition, please revise the notes to your consolidated
financial
statements to include all the disclosures required by paragraph 40
of
SFAS 128.
Consolidated Balance Sheet, page F-3
63. If you are not required to provide updated financial
statements,
please present pro forma equity disclosures that reflect the $35
million dividend you declared on July 28, 2005. You should also
present pro forma equity disclosures that reflect this dividend on
pages 8, 28, 30 and 32. In addition, please provide the pro forma
earnings per share disclosures required by SAB Topic 1:B:3.
Consolidated Statement of Cash Flows, F-21
64. Please provide additional information regarding the specific
nature of the line item "change in reserves," including if and how
each amount impacted your statements of operations during the
periods
presented.
Consolidated Statement of Shareholders` Equity, page F-22
65. Please rename this statement to clearly reflect the fact that
there is a shareholders` deficit, similar revisions should be made
to
your annual and interim balance sheets and any other equity
disclosures throughout the filing. In addition, please provide an
additional column that reflects total shareholders` deficit.
Note 2 - Formation of KI Holdings Inc., page F-6 and Note 1 -
Significant Accounting Policies, Parent Company of Koppers Inc.,
page
F-24
66. As of each balance sheet date, please quantify the amount of
dividends that may be declared based on the current dividend
restrictions.
Note 1 - Significant Accounting Policies - Revenue Recognition,
page
F-25
67. Please provide us additional information regarding the
specific
facts and circumstances in which you recognize revenue when title
passes to customers and demonstrate that your policy complies with
SAB
104.
Note 1 - Significant Accounting Policies - Stock Based
Compensation,
page F-28
68. Please revise your table to include pro forma basic and
diluted
earnings per share as required by paragraph 2e of SFAS 148,
Accounting
for Stock-Basis Compensation - Transition and Disclosure. In
addition, please revise the notes to your interim financial
statements
to include the disclosures required by paragraph 3j of SFAS 148.
Note 8 - Leal Proceedings, page F-10 and Note 8 - Commitments and
Contingencies, page F-42
69. In regard to the product liability cases, please quantify the
dollar amounts of the damages being sought in these cases.
70. In regard to the actions by the NZCC and the ACCC, please
quantify
the upper end of the potential range of loss and please explain to
us
how and why you determined that accruing the minimum end of the
range
is appropriate.
Note 9 - Environmental and Other Matters, page F-12 and Note 8 -
Commitments and Contingencies, page F-42
71. Tell us how you are accounting for the payments you will make
to
Beazer East under the amended Indemnity Agreement. Address the
limitations under the agreement, including the likelihood that
those
limitations will be reached.
72. To the extent that there is a reasonable possibility that a
loss
may have been incurred, please revise your disclosures to quantify
the
estimate of the possible loss or range of loss or state that the
loss
cannot be estimated. See paragraph 10 of SFAS 5, Accounting for
Contingencies for guidance.
73. Please quantify the amount of damages sought in the Somerville
matter.
Note 13 - Segment Information, page F-16 and Note 9 - Operations
by
Business Segment, page F-47
74. Please provide us the internal reports used by your CODM.
Item 15. Recent Sales of Unregistered Securities, page II-2
75. Please provide the specific dates and consideration for the
recent
sales of unregistered securities. See Item 701 of Regulation S-K.
Exhibits
76. Please file a statement on computation of per share earnings.
See
Item 601(b)(11) of Regulation S-K.
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing
includes all information required under the Securities Act of 1933
and
that they have provided all information investors require for an
informed investment decision. Since the company and its
management
are in possession of all facts relating to a company`s disclosure,
they are responsible for the accuracy and adequacy of the
disclosures
they have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
? should the Commission or the staff, acting pursuant to
delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
? the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
? the company may not assert staff comments and the declaration
of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division
of Corporation Finance in connection with our review of your
filing or
in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering of
the securities specified in the above registration statement. We
will
act on the request and, pursuant to delegated authority, grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Dale Welcome at (202) 551-3865 or in his
absence, Anne McConnell at (202) 551-3709 if you have questions
regarding comments on the financial statements and related
matters.
Please contact Brigitte Lippmann at (202) 551-3713 or in her
absence,
Chris Edwards at (202) 551-3742 or me at (202) 551-3760 with any
other
questions.
Sincerely,
Pamela A. Long
Assistant Director
cc: Richard Farley, Esq.
Cahill Gordon & Reindel LLP
80 Pine Street
New York, NY 10005
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Steven R. Lacy, Esq.
KI Holdings Inc.
October 11, 2005
Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-0404
DIVISION OF
CORPORATION FINANCE